Sunday, March 22, 2015

Big Energy, the Abolition of Slavery, and Global Warming

The association of slavery with big energy companies and global warming might not seem to make sense, but there is a context in which it does.  Christopher Hayes discussed the relationship in his article in The Nation: The New Abolitionism.

Hayes was particularly intrigued by a calculation reported by Bill Mickibben, the well-known author and environmental activist.

“….a fairly straightforward bit of arithmetic that goes as follows. The scientific consensus is that human civilization cannot survive in any recognizable form a temperature increase this century more than 2 degrees Celsius (3.6 degrees Fahrenheit). Given that we’ve already warmed the earth about 0.8 degrees Celsius, that means we have 1.2 degrees left—and some of that warming is already in motion. Given the relationship between carbon emissions and global average temperatures, that means we can release about 565 gigatons of carbon into the atmosphere by mid-century. Total. That’s all we get to emit if we hope to keep inhabiting the planet in a manner that resembles current conditions.”

The problem becomes obvious when we learn that proven, worldwide energy reserves are five times the amount that can be consumed within that temperature constraint.  Hayes concludes that somehow the fossil fuel companies are going to have to be persuaded or coerced into leaving at least 80% of their wealth buried under ground.  Placing a value on this fuel is difficult, but he suggests $20 trillion as an estimate.

Hayes then suggests that the only time such an enormous economic change was required was when the slave economy in the Americas was dismantled.  He estimates that the economic value of the slaves relinquished in the United States alone would be equivalent to about $10 trillion in today’s economy.  Consequently he concludes that the economic consequences were similar in scope to eliminating access to fossil fuel reserves.

Slavery did not end easily in the United States.  It took years of a civil war that was easily the bloodiest conflict the nation has ever participated in.  While limiting the access of energy companies to their claimed wealth in fossil fuels may not lead to violence, Hayes claims it is no less radical an idea in our time and will likely not be accomplished without some level of strife.

“….the parallel I want to highlight is between the opponents of slavery and the opponents of fossil fuels. Because the abolitionists were ultimately successful, it’s all too easy to lose sight of just how radical their demand was at the time: that some of the wealthiest people in the country would have to give up their wealth. That liquidation of private wealth is the only precedent for what today’s climate justice movement is rightly demanding: that trillions of dollars of fossil fuel stay in the ground. It is an audacious demand, and those making it should be clear-eyed about just what they’re asking. They should also recognize that, like the abolitionists of yore, their task may be as much instigation and disruption as it is persuasion. There is no way around conflict with this much money on the line, no available solution that makes everyone happy. No use trying to persuade people otherwise.”

Hayes then goes on to question the business model that the energy companies seem to be following and suggests a path for climate activists to follow in contending with them.

“Fossil fuel extraction is one of the most capital-intensive industries in the world. While it is immensely, unfathomably profitable, it requires ungodly amounts of money to dig and drill the earth, money to pump and refine and transport the fuel so that it can go from the fossilized plant matter thousands of feet beneath the earth’s surface into your Honda. And that constant need for billions of new dollars in investment capital is the industry’s Achilles’ heel.”

The energy companies must keep their shareholders happy and they must act in such a way as to maintain the value of company shares and continue to have access to new capital.  Hayes’s plan is for activists to convince shareholders and other investors that the energy companies are pursuing a business plan that is doomed to failure.

“Investors, even those unmotivated by stewardship of the planet, have reason to be suspicious of the fossil fuel companies. Right now, they are seeing their investment dollars diverted from paying dividends to doing something downright insane: searching for new reserves. Globally, the industry spends $1.8 billion a day on exploration. As one longtime energy industry insider pointed out to me, fossil fuel companies are spending much more on exploring for new reserves than they are posting in profits.”

“Think about that for a second: to stay below a 2 degree Celsius rise, we can burn only one-fifth of the total fossil fuel that companies have in their reserves right now. And yet, fossil fuel companies are spending hundreds of billions of dollars looking for new reserves—reserves that would be sold and emitted only in some distant postapocalyptic future in which we’ve already burned enough fossil fuel to warm the planet past even the most horrific projections.”

“This means that fossil fuel companies are taking their investors’ money and spending it on this extremely expensive suicide mission. Every single day. If investors say, ‘Stop it—we want that money back as dividends rather than being spent on exploration,’ then, according to this industry insider, ‘what that means is, literally, the oil and gas companies don’t have a viable business model. If all your investors say that, and all the analysts start saying that, they can no longer grow as businesses’.”

When Britain passed a law outlawing slavery in most of its possessions in 1833—and all lands soon thereafter—it was accomplished peaceably by offering slave owners financial compensation for their lost slaves.  The former slaves did not go away necessarily.  Most remained available as laborers, but laborers who had to be paid.  The businesses affected could switch business models and resume activities in many cases.  There is no similar backup plan for the energy companies at this point. 

There may be more to the energy companies’ business model than Hayes suspects.  It could be that part of the justification for continuing to search for energy reserves is the hope for eventual compensation for their inevitable loss.

It could also mean that big energy believes that human nature is on their side and they will be allowed to provide pollutants indefinitely into the future.  There is little indication of mass movements to rein in the energy companies.  In fact, there appears to be support being given to those who would experiment with geoengineering solutions in an attempt to counter the rising temperatures while eliminating the need to constrain fossil fuel consumption.

The energy corporations seem to believe that preserving their stock market valuation must be their primary objective.  The shareholders would probably agree with that as a strategy because they would rather have shares that they could sell if they wished and pay taxes at the capital gains rate rather than have dividends that are taxed at a higher rate as regular income.  The wealth of the company is judged in terms of current income and possessed assets.  If a company were to even hint that it was getting out of the energy exploration business, the stock price would likely plummet as shareholders jumped off a sinking ship.

It would seem that the best way to end fossil fuel extraction is the traditional way—by making the demand for fossil fuels drop so low that it is no longer a viable business.  The recent fall in the price of oil is often interpreted as being harmful to alternate energy solutions.  It is not clear that that is a correct assumption.  People and businesses will not necessarily consume more energy because it is cheaper.  That usually makes no sense.  There is the possibility that the switch to renewable energy sources may slow down a bit, but one lesson that should be learned from the recent price excursions is that fuel prices are very volatile and that what goes way down can also go way up.  Long-term plans are unlikely to be much changed.

It is interesting to note that while the price of fuel dropped dramatically, the level of demand was little changed.  Price changes were based on projections into the future.  The way to limit the activities of energy companies is to create a future projection of demand that will drive prices lower permanently—so low that future energy extraction becomes uneconomical. 

The technologies are already available to dramatically lower demand for fossil fuels.  Just striving for greater efficiency in transportation and in heating and cooling homes and businesses can provide enormous savings.  There are no wondrous breakthroughs required.  We must merely speedup processes that are already underway.  One such path to the near elimination of fossil fuel demand is described here.

Activists’ time would be better spent attacking demand rather than supply.

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